Orange County’s economy is slowing as job growth and housing affordability become bigger factors in the county’s long-range health.
Esmael Adibi, director of the A. Gary Anderson Center for Economic Research at Chapman University in Orange, delivered his biannual economic forecast on Wednesday amid talk that a housing bubble has developed in OC as home prices have soared to record levels.
Adibi also said he forecasts 1.7% job growth in 2005, or the creation of 24,000 jobs, and 1.2% growth in 2006, or 18,000 new jobs. OC job growth was 2.2% last year.
Several warning signs point to a slowing housing market, Adibi said. He cited evidence of increased speculation of second-home buying in OC, and a growing percentage of people trying to squeeze into a home with adjustable mortgages.
“Incomes relative to housing prices are out of whack,” Adibi said.
But don’t look for a drastic decline in prices this year or next.
“In 2006, we do expect a slight drop in prices,” Adibi said. “This suggests not a bursting of the bubble but rather a slow deflation. It certainly appears that a housing price bubble has developed in Orange County.”
Adibi delivered his remarks along with economist James Doti, president of Chapman, at a conference on the national, state and local economies. More than 500 business officials and government leaders attended the event held at the university.
While home prices have surged nationally, the decline in mortgage rates has kept the percentage of median family income needed for mortgage payments nationally near the historical average of 20%, Adibi said.
“Housing prices in Orange County, however, have moved up so rapidly that almost 50% of a family’s income is now needed to make a housing payment,” he said. “It’s less than 10% in middle America.”
The median price paid for an OC home was $590,000 last month, up 8.7% from a year ago and 2% from April, according to La Jolla-based DataQuick Information Systems.
The gain continues to reflect a slowing in the runaway price rises for the housing peak, when the median grew at 20%-plus annual jumps.
Doti said the slowdown in the national economy is more related to the skyrocketing cost of oil & #379;now trading above $59 for a barrel of crude & #379;than to the Federal Reserve’s actions to raise interest rates.
The Fed funds rate currently is at 3%. The central bank has raised its target rate for overnight loans between banks eight times since last June in quarter-percentage point increments.
Doti’s forecast calls for two more rounds of 25-basis point increases, pushing the fed funds rate to 3.5% by the end of the year, where he expects it to remain through 2006.
